Volatility Trends in NDX Options & Relationship to SPX

**SPEAKER_1** (0:00)
Kevin, great to have you in. Now, Sam was just talking about the VIX being under 15
We, of course, have the S&P hovering pretty close to record highs right now. I was looking over some of the data that you sent, and I was seeing short-term straddles on the Nasdaq 100 or near historical lows. As we look at that set up, is the options market right now pricing in this concept of total calm, which seems very odd, or are traders perhaps just maybe getting complacently cheap on downside protection?

**Kevin Davitt** (0:30)
That's a great question, and I think what we want to do is hopefully let data give us some indication of the answer there.
Big picture, I would argue that, and this is something a point I make on here regularly, is that the information embedded in option values, and in particular, index options, is super valuable no matter whether you use options or not. The way, the speed at which the market has repriced risk throughout 2026, I think lends itself to optionality in general. To illustrate that, if we can't pull up the visual on the NDX straddles looking back through time, I think it lays it out well.
Thank you. I'll keep your production busy today. But your point about coming into today, that at-the-money straddle being cheaper than it's been in quite some time, is correct. That bleeds into measures like the VIX or the VXN. Interestingly, this is likely to be the first day since Wednesday of last week that the straddle wasn't appropriately priced. Now, prior to that, and what I mean by that is coming into today, the at-the-money straddle was pricing a 70 basis point range. We're up in the neighborhood of 1.3 percent. If we close here, be outside the range. But for the past handful of days, those straddles have been accurate and built in enough of a cushion. So the question becomes looking forward, are we complacent or not? One other data point, and I am apprehensive to put more than a grain of salt into seasonality. But if you look at VXN seasonality, going back a decade, I looked for the calendar year low point, and it happens to be August 14th.
So we will see, this tends to be a point where you see a lack of realized and implied volatility, whether that means we're likely to move up in the near term. I'll have to come back in a couple of weeks and we'll talk about that.

**SPEAKER_1** (2:34)
Very interesting. One day off, the timing of that.
Overall, not necessarily tied to that last chart, but what are you seeing right now, Kevin, in options activity that you think is inconsistent with the broader narrative that I keep getting, that investors are increasingly bullish?

**Kevin Davitt** (2:52)
I'm not seeing a whole lot that would counteract that. Let me take it apart a couple of different ways. So what we have seen particularly over the past two weeks, so you kind of had an inflection point in late July where markets capitulated, and since then, we've generally been trending higher.
What has happened in the index options market is that we've seen put skew come in very, very considerably. That is in keeping with a sort of overall bullish inclination, and you see a whole lot of other data points that indicate increasing comfort with the rally that we've seen the potential for legs there. I look at things like financial conditions where that measure is arguably at multi-decade lows. That tends to lend itself to a risk on market. Now, where might there be pockets of concern?
I think interest rates continue to sort of push on that lever periodically. And I would point out at the end of this month, we're going to have that Jackson Hole Symposium. This war-shled fed seems committed to being less forthright and less forward guidance. And that sort of uncertainty can compound if we get data points that are less benign than the most recent inflation figures.

**SPEAKER_1** (4:21)
And it's staying more broad here, too. I know you like to look at the historical data, so I'm curious, when we were talking about volatility at the index level, how you are looking at the current relationship between index level volatility and stock specific volatility, and if the relationship between them now is typical or atypical from what we're seeing historically.

**Kevin Davitt** (4:41)
Great question.
I think about this point regularly, and I'm gonna keep your production busy here because we have a visual that helps explain it, but we'll talk about dispersion. And I wanna keep in mind the audience there, like to what extent does that matter to somebody that manages options risk at home? Well, that relationship between the options in Apple or Amazon or Alphabet or you were just talking about Cisco, they all flow into this top 25 in the Nasdaq 100 That average through time is plotted in blue here in the visual and the index level volatility is plotted in red. That relationship expands and contracts. Generally speaking, when the market is doing well, it will expand. We have seen that in spades over the past six to eight weeks.